The Government's pension reform

Written evidence submitted by the British Australian Pensioner Association Inc (BAPA)

1.  This submission is to address the issue of "...or on any other pension matters" as stated above.

2. In this context I would like to raise the issue that all people contribute towards the National Insurance (NI) scheme under exactly the same rules and mostly on a mandatory basis from age 16 to age 65.  All people qualify for their British state pensions under exactly the same rules, based on the number of years of NI contributions.  When it comes time to pay the state pension, different rules are applied depending on where the person happens to live.

3.  British state pensioners receive annual uprating of their pensions each year if they live in the UK and a further 500,000 pensioners living in around 40 countries overseas also receive annual upratings just as if they lived in the UK.  A further 500,000 pensioners living in mainly Commonwealth countries have their state pension frozen at the rate at which it is first paid or as at the date of migration.

4.  Government Ministers often cite "Social Security Reciprocal Agreements" being in place between the UK and certain overseas countries as the justification for paying uprated pensions to people living in those countries.

5.  I have recently obtained officially sourced data from the Philippines Government regarding the Reciprocal Agreement in place with the UK.  In the latest year for which data is available, there were just 30 Filipino pensioners living in the UK receiving a total of £30,000 per year in uprated pensions under the Reciprocal Agreement.  By contrast, in the most recent year for which data is available from the DWP there were over 1,500 British state pensioners living in the Philippines receiving a total of approximately £8,000,000 in total per year.  So there does not appear to be much reciprocity in the reciprocal agreements. It is expected that a similar imbalance exists between the UK and a number of other uprated countries, including Jamaica, Bermuda, Barbados and Turkey, and even Israel.

6.  If the DWP looked at a "whole of government" view (that is, not solely looking at the DWP but also the relevant or associated costs in the NHS, DCLG, etc.), it can be shown that the savings to the government through pensioners living overseas is of the order of £8,100 in savings from the NHS, Social Services and Housing.  It would cost on average an amount of £1,000 per pensioner per year to uprate all overseas pensions.  There is also taxation lost to the Government of £3,500 per pensioner per year (in lost income tax, VAT and council tax).  So that means that the government saves £3,600 on average per pensioner per year.  For every additional pensioner who is encouraged to migrate to a currently frozen Commonwealth country, there would be this saving each year per additional pensioner. The International Consortium of British Pensioners has commissioned and received a report on some research work with the think tank Matrix Knowledge and a copy of the report can be provided to you if desired, which supports these assertions.

7.  In addition, it would likely free up a house in the UK for each pensioner or pensioner couple who is encouraged to migrate to a frozen Commonwealth country through the payment of an uprated pension.

8.  There are still a large number of British state pensioners who retain links with the UK, not least through the payment of their state pensions, and this failure by the UK to uprate the pensions of all pensioners living overseas continues to be a sore point with them.

9. The UK is unique in the countries of the OECD and EU in the way that it discriminates against some of its state pensioners who happen to live overseas, based on the country of residence.

10. British Governments of whatever political flavour often state that they are "family friendly" or "family oriented" but fail to recognise that many pensioners would have a desire to move to Commonwealth countries, to be with their children and grand children who have moved there, in their retirement. The current frozen pensions policy is a barrier to this family reunion happening in a significant number of cases. With Britain being in the "Global Economy" it should be accepted that British people often live overseas for study or work purposes and having a common approach to the payment of pensions related to mostly mandatory NI contributions would be logical.

11. Whenever a pensioner from a frozen country visits the UK or EU they are entitled to advise the DWP and have their state pension uprated for the period of their temporary residence in the UK or EU. The DWP often requires documentary evidence of the visit, for example, copies of documents such as itineraries, airline tickets, boarding passes, hotel accommodation and so on and these need to be faxed, emailed or posted to the DWP. When the pensioner returns to their country, their pension is frozen once again. I submit that the need to employ a small army of civil servants to administer this system is one place where cost savings could be made within the DWP if all overseas pensioners were treated the same. Unfortunately the DWP does not maintain a performance monitoring system in relation to this activity (despite questions from MPs in the House of Commons), so it is difficult to quantify exactly what savings could be gained but they are considered to be not insignificant.

12. In summary I submit that despite the previous reluctance to uprate all British state pensioners living overseas, there are significant savings and benefits to the British Government in doing so.

February 2011